Arcep speaks

Asia Telecom - 4 December 2000 / Speech by Jean-Michel Hubert, Chairman of the French Telecommunications Regulatory Authority (ART)

Ladies and Gentlemen,

It is a great pleasure for me to be here to address this eminent international assembly. Furthermore, I am delighted to be involved in a debate on the development of Asia, a continent whose importance in the world economy is growing steadily.

I want to talk to you today about the French approach to the regulatory process, from a European standpoint. Faced with globalisation, Europe, just like Asia, is having to cope with the shift from national economies to a regional economy.

I. Principles and objectives of regulation

First seen in the USA, regulation was introduced in Europe ahead of the full liberalisation of the market. It remains a new concept, a concept whose scope must be fully understood.

At the outset, the role of general government, which was responsible for operating telecommunications networks, was dictated by theory of natural monopoly. This was perfectly understandable given that fixed costs were so high that only the State had the means to invest in, operate and regulate an activity that was viewed as a public telecommunications service. And even in cases where a private company was running the service, monopoly was the rule rather than the exception.

Two factors changed this situation: technological progress, but above all the realisation that competition delivered greater economic efficiency. As a result, relations between the State and the incumbent operator shifted, with the State losing its legitimacy as operator of the telecommunications service, which was finally opened up to competition.

To take these new circumstances into account, the State redistributed the roles between the public authorities and the productive sector. And this led to the emergence of an independent regulator.

Looking at the main components of the liberalisation process, we can see a number of constant factors, with national variations, in almost all the countries that opened up their market. Briefly, the process is as follows:

  • Stage one consists of the legal separation of the operating and administrative functions. This is usually done by creating a company incorporated under ordinary law, in which the State may retain a majority interest. This is the case in France.
  • Stage two is decisive and consists in abolishing monopolies and exclusive or special rights. This stage is generally accompanied by measures designed to preserve a high-quality public service. The universal service is a major issue in France.
  • Stage three is legislative. It consists in setting down legal rules designed to introduce competition to a market that may remain dominated by the incumbent operator for some time. These rules govern interconnection, licensing conditions for network and service operators, tariff monitoring and technical provisions enabling new entrants to pursue their business.

These measures have a necessary consequence, namely the creation of an independent regulator.

1. Defining regulation

When it comes to drawing up a definition of regulation, the English language does not distinguish between "the law making process", and the "fine-tuning of the market". It is in this latter sense — fine-tuning — that I am using the word "regulation" today.

In a liberalised market, one has to distinguish between these two concepts. On the one hand, the public authorities, namely government and parliament, are responsible for laying down operating rules for the market in order to protect the rights of consumers and citizens and to safeguard the freedom to pursue commercial activities. On the other hand, the implementation of these rules must be entrusted to a separate institution whose impartiality is beyond question. We must bear in mind that if such a institution is to officiate over the way a market operates, it must have quasi-jurisdictional powers, including the power of sanction.

In France, the parliament and government are in charge of the law making process, while ART, an independent State institution, handles regulation, implementing it in the general interest.

All Member States of European Union have adopted this type of approach.

2. Regulation: a new form of public action

Regulation is a new form of public action adapted to today's constantly changing economy. It is based on a pragmatic approach and on a process of ongoing consultation with market participants. Why? Because it must keep step with fast-moving changes on the telecommunications market and take on board international issues.

Thus, since ART was created, we have made it a priority to collaborate with market players on all major issues. Public consultations, working groups and experimentation have proved extremely useful tools in this process. Witness our approach to handling the wireless local loop, UMTS and unbundling. Consultation with participants provided vital feedback and guided our choices, enabling us to foster innovation, develop competition and protect consumers, in other words, to reflect the needs of the market.

Yes, the main aim of regulation is to foster competition. As it progresses in its task, it becomes progressively lighter. It mustn't make administrative procedures more complex or awkward. Rather it must help to make public action more flexible and less cumbersome.

3. Consumer satisfaction: the primary objective of regulation

But competition must also deliver benefits to all consumers. The regulator's role is to ensure that this is the case. Consumer satisfaction, in its various components, is taken into account in all our analyses and decisions.

  • The price of telecommunication services is both a vital indication of the progress of competition and a means of measuring the regulator's work for consumers.
  • The various measurements set down by law and implemented by the regulator can make an important contribution to service quality. In France, quality-related obligations are written into operators' licences, notably in those for mobile operators and future UMTS operators.

4. The French market in Europe

What are the first results, less than three years after full liberalisation?

In France, ART's efforts in the field of regulation have already led to a genuine opening-up of the French market, contributing to the strength of the European market as a whole.

In all, more than a hundred operators, both fixed and mobile, have been granted licences in France. On the long-distance segment, France Télécom's competitors had market share of thirty per cent at the end of September 2000 and the number of subscribers to carrier selection and preselection services broke the four million barrier before summer. On the mobile market, the number of subscribers has doubled every year during the last four years; it will soon exceed the number of fixed subscribers.

In 1999, the market expanded by more than twelve per cent in nominal terms. It continued to grow in the first half of 2000, with mobile telephony and the Internet again acting as the driving forces. In first half 2000, the volume of mobile calls as well as the volume of Internet access calls roughly doubled compared with the previous year’s figures.

II. Building a European market

Two forces are now powering the growth of the European telecommunications market, which is the second largest in the world after that of the United States: the full opening-up of Europe's market to competition and the advent of new technologies.

1. Framework and methods in the European market

The harmonisation of European telecommunications justified the implementation of specific, standardised rules that opened the market to competition three years ago. These directives have led to the application of common objectives and methods. This common framework is currently being revised to better reflect the trend of the market towards convergence, to answer the need for technologically neutral regulation and to avoid the risk of a digital divide (what about a new approach of universal service?).

To meet this need for harmonised rules and co-ordinated regulation, Europe's Independent regulators set up a group to compare their experiences, exchange information and undertake joint action.

This informal group is not a European regulator, but it can definitely be considered as a first step towards pan-European regulation.

All in all, a European approach is being steadily and intensively implemented. Should it be used as a model? Only the other regions and countries of the world can answer that question. All I can say is – it works.

2. Major European projects

Two examples illustrate the efforts to build a common European telecommunications market around a common goal, namely to increase the use of Internet and to develop high-speed networks and broadband services.

The mobile market

The development of the mobile sector reflects the buoyancy of the European market. With nearly 230 million subscribers, Europe is the biggest mobile market in the world and has shown exceptional growth for several years running.

The key to the success in mobile telephony is GSM, a single European standard that has achieved global acceptance as a result of coordinated political support and strong commitment to standardisation in Europe.

With UMTS, an advanced stage in mobile Internet services, Europe is now hoping to repeat the success of GSM. A common timetable has been adopted so that in all member states, operators should start offering services in 2002.

As you may know, Europe is split between auctions and beauty contest procedures for the selection of operators.

France has chosen the beauty contest procedure for three reasons:

  • We launched a large public consultation on UMTS. Almost all the contributors, including operators, manufacturers, experts, analysts and economists, said they were in favour of a beauty contest.
  • Previous beauty contests have shown themselves to be more favourable to market development than auctions, which force candidates to be selected on the basis of financial criteria only, with other important considerations being disregarded.
  • In the UMTS process, some players, namely the 2G operators, have to obtain a 3G licence to remain present in the market; therefore, the possibility of withdrawing — a pre-condition for auctions — does not exist in this market. This may lead to overly optimistic and sometimes irrational results.

ART implemented a beauty contest procedure last spring in France for the selection of wireless local loop operators. Twenty-eight candidates submitted applications and about 12 operators will have received a licence by the end of next January. Nine of them have already begun deploying their network across the country and will provide services by next year. Between 2000 and 2004, they plan to invest 2.7 billion euros and create 6,000 jobs. I would like to point out that the deadline for submitting appeals has just expired and no disputes have arisen from this beauty contest.

The method we adopted was fully transparent, because we published all the documents involved in the selection process, including the memorandums and marks relative to each criterion for each operator. Also, it is in line with the general interest, as defined by government and parliament, i.e. to provide Internet access to the largest number of citizens rather than to maximise State budget income.

The system chosen in France for UMTS gives the operators a reasonable opportunity to develop a market that has not answered yet these crucial questions: which services, for which consumers, at what price? I am convinced that our approach is a fair and balanced one.

Looking beyond the effervescence of the year 2000, I remain confident about the development of UMTS in Europe. However, I think the third generation of mobile phones needs to be introduced in stages. Launched several months ago, WAP has enjoyed only limited success, because of the low speeds available, the limited attraction of the services offered and the complexity of the system for users. The arrival of GPRS in 2001 should boost new mobile services and may even be as successful as i-mode in Japan. This is certainly a major objective for regulation and for the future of UMTS.

Opening the local loop: unbundling

Competition on the local loop has become a decisive element in the process of opening the telecommunications market since the spectacular development of the Internet and the arrival of high-speed access technologies, particularly xDSL.

Three or four years ago, when the European directives were adopted, the legal framework did not encompass these developments and the word "Internet" did not appear in the legislation, which is an indication of how rapidly the sector has changed.

The opening of the local loop is now a priority for the European Union. By the end of the year, the EU will adopt a specific framework legislation on the unbundling of the local loop from the incumbent operators, which should apply directly to all the EU countries after January 1st 2001.

Through the IRG, the European regulators intend to harmonise the conditions for implementing the EU legislation, using the same methods, and adopting the same pace. A working group has been set up to adopt common recommendations on the procedures required for unbundling. These recommendations will be made public when the legislation comes into force. This is a spontaneous initiative, supported by the European Commission, that intends to enhance the European scope of regulation and to foster market development.


In the space of a few years, in particular since the liberalisation of the market in Europe, regulation has been incorporated into the institutional framework of many countries throughout the world. It is now recognised as an effective mode of public action, which can be extended to other economic sectors.

In the telecommunications sector, with the advent of the Internet and the information society, regulation must adapt to new developments. The expansion of information technology, particularly high-speed networks, will create new inequalities between people and countries. New action will be required to avoid a widening of the emerging digital divide. Regulation will certainly have a major role to play.

Thank you for your attention.

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